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Is Alkermes' Stock Cheap by the Numbers?

Let's take a look.

Numbers can lie -- but they're the best first step in determining whether a stock is a buy. In this series, we use some carefully chosen metrics to size up a stock's true value based on the following clues:

The current price multiples.

The consistency of past earnings and cash flow.

How much growth we can expect.

Let's see what those numbers can tell us about how expensive or cheap Alkermes(Nasdaq: ALKS) might be.

The current price multiplesFirst, we'll look at most investors' favorite metric: the P/E ratio. It divides the company's share price by its earnings per share -- the lower, the better.

Then, we'll take things up a notch with a more advanced metric: enterprise value to unlevered free cash flow. This divides the company's enterprise value (basically, its market cap plus its debt, minus its cash) by its unlevered free cash flow (its free cash flow, adding back the interest payments on its debt). Like the P/E, the lower this number is, the better.

Analysts argue about which is more important -- earnings or cash flow. Who cares? A good buy ideally has low multiples on both.

Alkermes has negative P/E and EV/FCF ratios over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, Alkermes has a P/E ratio of 23.9 and a five-year EV/FCF ratio of 149.5.

A one-year ratio under 10 for both metrics is ideal. For a five-year metric, under 20 is ideal.

Alkermes is zero for four on hitting the ideal targets, but let's see how it compares against some competitors and industry mates.

Let's start by seeing what this company's done over the past five years. In that time period, Alkermes has put up some losses that render past EPS growth rates meaningless. However, Wall Street's analysts expect future growth rates of 20.5%.

Here's how Alkermes compares to its peers for trailing five-year growth:

The bottom lineThe pile of numbers we've plowed through has shown us the price multiples shares of Alkermes are trading at, the volatility of its operational performance, and what kind of growth profile it has -- both on an absolute and a relative basis.

The more consistent a company's performance has been and the more growth we can expect, the more we should be willing to pay. We've gone well beyond looking at a negative P/E ratio, but this is just a start. If you find Alkermes' numbers or story compelling, don't stop. Continue your due diligence process until you're confident that the initial numbers aren't lying to you.

Anand Chokkaveludoesn't own shares in any company mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.